Question

Pargo Company is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales. Sales for the year are expected to total 1,100,000 units. Quarterly sales are 22%, 27%, 26%, and 25%, respectively. The sales price is expected to be $38 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 15% higher than the budgeted sales for the first quarter of 2017.

Production. Management desires to maintain the ending finished goods inventories at 25% of the next quarter’s budgeted sales volume.

Direct materials. Each unit requires 2 pounds of raw materials at a cost of $10 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 492,000 pounds.

Prepare the sales, production, and direct materials budgets by quarters for 2017.

Answer 1

Required Budgets are as prepared below:

Pargo Company
Sales Budget
	Quarter
	1	2	3	4	Year
Expected Unit sales	242000	297000	286000	275000	1,100,000
Unit selling price	38	38	38	45
Total sales	9,196,000	11,286,000	10,868,000	12,375,000	43,725,000
Pargo Company
Production Budget
	Quarter
	1	2	3	4	Year
Total sales	242,000	297,000	286,000	275,000	1,100,000
Desired Ending Finished Goods	74,250	71,500	68,750	69,575	69,575
Total Required volume	316,250	368,500	354,750	344,575	1,169,575
Beginning finished goods	60,500	74,250	71,500	68,750	60,500
Total production	255,750	294,250	283,250	275,825	1,109,075
Pargo Company
Direct material Budget
	Quarter
	1	2	3	4	Year
Budgeted production	255,750	294,250	283,250	275,825	1,109,075
Raw material required for 1 unit	2	2	2	2	2
Total Raw material Required	511,500	588,500	566,500	551,650	2,218,150
Add: Ending Raw material	58,850	56,650	55,165	49,200	49,200
Less: Opening raw material	51,150	58,850	56,650	55,165	51,150
Total raw material purchase	519,200	586,300	565,015	545,685	2,216,200
Cost of 1 pound	10	10	10	10	10
Cost of Material purchased	5,192,000	5,863,000	5,650,150	5,456,850	22,162,000

Working:

Pargo Company
Sales Budget
	Quarter
	1	2	3	4	Year
Expected Unit sales	1100000*22%	1100000*27%	1100000*26%	1100000*25%

Year 2018
Quarter 1
242,000+ (242,000*.15)	36300	278300
45
12,523,500